The pandemic has brought about significant shifts in the American housing landscape, with a new Zillow® report revealing a narrowed gap between Black and white renting families who could comfortably afford a mortgage. Nevertheless, the persistent homeownership gap and disproportionately high mortgage denial rates for Black families indicate that barriers beyond income continue to obstruct access to homeownership.
In 2022, nearly 38.6% of the 138 million U.S. families were non-homeowners, according to the American Community Survey. Of these, over 6.3 million families were deemed “income mortgage-ready,” indicating their income could support a typical mortgage payment in their area without financial strain.
While 7.8% of Black non-homeowning families were income-ready for a mortgage, the figure was 12.5% for white families, resulting in a 4.7 percentage point gap. This gap, though substantial, has decreased by over a third since 2012 when it stood at 7.9 percentage points.
Zillow Senior Economist Orphe Divounguy noted, “Despite the significant decline in mortgage affordability in the past two years, millions of families who do not own their home have the means to afford the largest share of a homeowner’s cost – the mortgage.”
However, the number of renting families able to afford a mortgage fell to 6.3 million in 2022 from 12.9 million in 2021, as mortgage rates doubled. Despite this, the median family income of renters rose more for Black families than for white families since 2012. The regions where Black family income rose most generally saw a more significant decrease in the racial mortgage readiness gap during the same period.
“While some families may choose to rent, many are simply constrained. It’s crucial to recognize the existence of additional barriers beyond monthly cost, including access to funds for a down payment and closing costs — as well as other barriers that significantly contribute to mortgage denials, like insufficient credit scores and lack of access to credit. These barriers especially impact people of color,” continued Divounguy.
Detroit led the nation with the highest proportion (13.3%) of Black renting families earning enough income to comfortably afford a mortgage. This was followed by Memphis (12.8%), St. Louis (12.0%), Houston (11.6%), and Cleveland (11.2%). Despite relatively lower home values in these regions enabling more Black families to afford the typical mortgage payments, homeownership remains elusive.
Significant racial disparities persist in homeownership rates and home values despite the faster income growth of Black renting families during the pandemic. In 2022, white households had a significantly higher homeownership rate (73%) than Black households (44%), with the gap exceeding 30 percentage points in over half of the country’s 50 largest metros.
The typical home owned by a white family continues to be worth considerably more than one owned by a Black family. While there has been some progress in bridging this home value gap, it still exceeds 10 percentage points in 42 of the top 50 metro areas.
Discriminatory lending practices and higher denial rates for Black mortgage applicants pose additional challenges to housing equity. In 2022, Black applicants faced a staggering 146% higher mortgage loan denial rate compared to white applicants, primarily due to credit history issues. This differential could potentially hinder future generational wealth transfer.
Efforts aimed at enhancing access to down payment assistance and credit-building opportunities, alongside zoning reforms and initiatives to construct and preserve affordable housing in thriving communities, are critical to addressing these disparities. While the narrowing of the income-related homeownership gap is a positive sign, the persistence of systemic obstacles underscores the need for further action to promote housing equity.
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